Using super to buy a first home

Australia is currently seeing a boom in our property market. The combination of record low interest rates and increased demand has seen house prices dramatically increase in recent months. This has led to a push by some to let Australians dip into their superannuation savings to help them enter the property market sooner (this is different to the current First Home Super Saver Scheme, which allows first home buyers to save money for a first home inside their super fund).

At first, the idea seems like a good one. It gives first home buyers the option to use their hard-earned savings to get onto the real estate market earlier than if they had to save for a deposit from scratch. It allows people to use their money now, rather than wait until they retire.

However, a number of financial experts have noted that such a plan could have unexpected consequences.

People might not have enough for retirement

This is the most obvious consequence of accessing your super early. If you take your money out now, you won’t have as much to live on in the future.

If you for example withdraw $10,000 from your super, the impact of doing so isn’t as simple as just having $10,000 less in your account. If you had left that $10,000 in your account it would have accrued additional returns from investments made by your super fund over time. The amount of compound interest lost over the years can be quite significant, especially if you withdrew from your super at a young age.

Your super is designed to help you save for your future retirement, by withdrawing money early, it will have long term effects on how much money you’ll have by the time you retire.[i]

You might lose your insurance under your super fund

An often-overlooked consequence of draining your super account is that doing so can cause you to lose the insurance benefits that you have as part of your super membership.

Often membership of your superannuation fund will include insurance benefits for income protection, total and permanent disability (TPD) and life insurance. These insured benefits are offered, subject to eligibility conditions, in case you are injured or become ill and can no longer work. These insurance policies are paid for from your super account but making a claim against them will not affect your overall super balance, they are designed to provide you with an additional safety net in case something goes wrong. But if there is no money in your super account balance to pay for the insurance premiums, then the cover will lapse.

If you’ve been injured or become ill and can no longer work, use our Free Online Claim Check to see whether you may be entitled to benefits through your superannuation fund.

It could actually drive up house prices

According to the Association of Superannuation Funds of Australia (ASFA), allowing people to access their super early to buy property would likely drive up demand for properties, which in turn will lift property prices.

“Australia already has some of the most expensive housing in the world… using super for housing deposits would be disastrous and push prices even further out of reach of first-time buyers,” said ASFA CEO Dr Martin Fahy.[ii]

This will ultimately only help sellers get a higher price for their properties, rather than making it easier for someone to get into the housing market. And it’ll do little to help make housing more affordable or accessible for low-income earners.

[i] https://www.amp.com.au/insights/COVID-19/consequences-of-withdrawing-super-early

[ii] https://www.superannuation.asn.au/media/media-releases/2021/media-release-15-march-2021